Point-by-point debate: Farm Bureau vs. Environmental Working Group

Earlier this month, the Environmental Working Group (EWG) released a report titled “Climate Change Will Cost Farmers Far More than a Climate Bill.”
Soon thereafter, Mike Held, administrative director of the South Dakota Farm Bureau, sent The Daily Republic a Farm Bureau response to some of the claims in the EWG report. The Daily Republic then gave EWG Midwest Vice President Craig Cox a chance to comment on the Farm Bureau’s responses.
Following is the verbatim text from both sides.

More...

Earlier this month, the Environmental Working Group (EWG) released a report titled “Climate Change Will Cost Farmers Far More than a Climate Bill.”

Soon thereafter, Mike Held, administrative director of the South Dakota Farm Bureau, sent The Daily Republic a Farm Bureau response to some of the claims in the EWG report. The Daily Republic then gave EWG Midwest Vice President Craig Cox a chance to comment on the Farm Bureau’s responses.

Following is the verbatim text from both sides.

Farm Bureau response to EWG claim that “Cap and Trade Costs not a Threat to Farm Income.”

EWG claims that, “Economists at the U.S. Department of Agriculture recently concluded that the costs of the climate bill are so small that they cannot credibly be characterized as a threat to farm income.” However, while USDA’s preliminary analysis calculates low short term impacts resulting from the Waxman-Markey bill, the analysis is based upon the Environmental Protection Agency’s conservative estimates for natural gas and electricity prices. In fact, estimates from the independent Energy Information Administration at the Department of Energy are two to three times higher. Assumptions on the price of natural gas greatly influence the price impacts of nitrogen fertilizer.

EWG Response: Let’s assume energy prices actually are three times higher than the “conservative” estimates of energy price increases forecast by EPA and used by USDA and that USDA estimates of costs per acre should therefore be increased by a factor of 3.

Even if USDA’s estimates of cost increases are increased three-fold, that still results in cost increases per acre that are less than the price of a single bushel of grain for corn forecast in the USDA baseline for corn ($3.57 per acre versus $3.72 per bushel), barley ($2.10 per acre versus $3.92 per bushel), oats ($1.71 per acre versus $2.34 per bushel), wheat ($1.98 per acre versus $5.41 per bushel), and soybeans ($1.35 per acre versus $8.72 per bushel). The increased cost per acre for sorghum would rise by $3.78 per acre¾slightly more than the forecast $3.32 per bushel price. Variable costs per acre for rice producers would rise by less than 2 percent and for upland cotton by less than 1 percent even if energy prices actually rise to levels three times higher than the EPA estimates that USDA used in their analysis.

It is also very important to remember that USDA’s estimates of cost increases assume the farmers take no action to adapt to the higher prices by improving fertilizer management and adjusting other cropping practices and cropping patterns. That means that the estimated costs increases very likely too high, as the USDA economists point out.

Farm Bureau response to EWG claim that “Cap and Trade Costs are so Small They are Background Noise”

EWG claims that the projected cost increases caused by the climate bill are so small they would be lost in the background noise caused by annual swings in farm income from yield variation, crop prices, and the costs of seed and chemicals. While the EWG claims the estimated input and cost of production price increases in the Texas A&M University, which is again based on the very conservative estimates of the EPA analysis, study are small, the report still found that 71 of 98 representative farms were in a worse financial position as a result of the Waxman-Markey bill. You can find the report at http://www.afpc.tamu.edu/pubs/2/526/rr%2009-2%20paper%20-%20for%20web.pdf. The Texas A&M study includes an average sized beef cattle ranch in western South Dakota that will lose a net of $17,300 each year under the Waxman-Markey bill. The 27 farms that benefit are almost entirely corn and soybean farms in the Midwest, and those farms benefit due to higher commodity prices resulting from other farms exiting the business and the assumption that the price of fertilizer will remain largely unchanged from the projected baseline.

For a more accurate view of Waxman-Markey’s impact fertilizer costs and producers’ bottom lines, please review the Agricultural Policy Research Institute at the University of Missouri-Columbia study on the impact of Waxman-Markey: http://www.fapri.missouri.edu/outreach/publications/2009/FAPRI_MU_Report_05_09.pdf. One scenario concludes that a typical farm in Missouri would see increased annual costs by $11,600 to $30,200 due to cap-and-trade.

EWG Response: The Texas A&M study used four different measures of financial impact of the climate bill on their 98 representative farms: (1) average annual cash costs, (2) average annual net cash farm income, (3) average ending cash reserves, and (4) average ending real net worth. The effect of the climate bill looks very different depending on which measure you choose to look at. If you look at average ending real net worth, then 75 of the 98 representative farms are better off as a result of the Waxman-Markey bill.

Farms would be even better off if the Texas A&M study used a more realistic assessment of the practices farmers could use to earn money by selling carbon credits in the offset market established under the Waxman-Markey bill. The Texas A&M study assumed farmers had only two options for producing carbon credits: no-till and methane digesters. Rice farmers and ranchers were assumed to have no options for selling carbon credits. In reality, farmers and ranchers will have many more opportunities to generate and sell carbon credits by using a wide array of practices that sequester carbon and reduce greenhouse gas emissions.

It is important to try to compare apples to apples. First we focused attention on the near-term effects (in year 2020) so we could compare the impact of the climate bill to USDA baseline forecast of what costs farmers would incur if the Waxman-Markey bill did not pass. If you look at the near-term impacts, then the “typical” Missouri farm would see costs increase between $4,903 and $11,649. It is also important to put these cost increases into perspective. According to the FAPRI study, total operating costs per acre would increase between 1.6 percent by 2020 for soybean producers, 3.2 percent for dryland corn, 3.5 percent for irrigated corn, and 4.1 percent for soft red wheat.

It is also important to note that FAPRI did not take into consideration the Energy Intensive Trade Exposed (EITE) provisions of Waxman-Markey that are designed to constrain fertilizer price increases. If EITE provisions were factored into the FAPRI analysis, their estimates of cost increases would be much lower and in-line with the USDA 2009 analysis.

Farm Bureau response to EWG claim that “Farm Subsidies are Larger than Costs of Cap and Trade”

EWG claims the subsidies farmers get from federal taxpayers every year will be far larger than any potential cost increase from a climate bill. EWG says that corn producers, for example, will get more than $2 billion per year in subsidies, 19 times the estimated additional cost they might face because of a climate bill. However, the authors fail to acknowledge that farm program payments are assumed in the baseline of all the economic analyses (including the USDA analysis referenced in the EWG report) and the costs and benefits resulting from cap and trade are additive. It is misleading to infer that the benefits from farm programs (i.e. direct payments, loan deficiency payments and counter-cyclical payments) will compensate producers when the safety net is triggered by low prices, not high input costs. In addition, the analysis fails to take into account the likely outcome of world trade negotiations in the Doha Round that may lead to lower price or income based farm programs in the future.

Furthermore, the study ignores the true beneficiaries of a potential agriculture offset program. As noted by Dr. Justin Baker and colleagues at the Nicholas Institute for Environmental Policy Solutions at Duke University, “We find that forest management incentives to landowners and afforestation offset payments to agricultural producers dominate other mitigation options in terms of annualized offset revenues and mitigation potential.” In short, the potential for farmers and ranchers to participate in an offset program and keep their land in production is minimal.

According to the same study, 40-50 million acres will move out of production and into some type of forestry activity. You can find the report at http://www.nicholas.duke.edu/institute/ni.wp.09.04.pdf.

EWG Response: Our point is simply that taxpayers already provide very large subsidies to crop producers with questionable public benefit. Indeed, direct payments, the largest single current subsidy, go out to farmers when prices are high, prices are low, or even if they aren’t farming at all. It seems only fair to consider the support taxpayers provide to producers of the crops included in the USDA study when suggesting that legislation to protect all Americans from global warming should be shelved because subsidized farmers might see a small increase in their costs.

It would have been more responsible if the Farm Bureau had included the full quote from the Nicholas Institute report. On the very next page the report authors state “Figure 6 highlights the payments for the more agricultural mitigation activities estimated to have more modest roles. Although these activities represent a small component of the cost-effective abatement portfolio (relative to forest management and forestation) they are still a significant revenue opportunity for agricultural producers.”

EWG claims that unless action is taken now to slow global warming, farmers can expect to see an acceleration of the extreme weather patterns and higher temperatures that have already taken a heavy toll on U.S. agriculture over the past two decades. Weather is one of the key factors affecting prospects for crop production and commodity prices. Farmers and ranchers are intimately in tune to the weather and know that it is never predictable. However, how climate change will impact the long-term probability and frequency of extreme weather events is still being studied. According to the U.S. Climate Change Science Program in its report, The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity, (http://www.climatescience.gov/Library/sap/sap4-3/default.php) changes in the climate are very likely to have affected these resources in the past. However, the report on page 3 further states that while climate change is very likely to affect agriculture, “we do not yet possess sufficient understanding to project the timing, magnitude, and consequences of many of these effects”.

EWG Response: Indeed, how climate change will impact the long-term probability and frequency of extreme events is still being studied as the Farm Bureau states. But the fact is each new study confirms that an increased frequency of extreme events will be, and likely already is, a clear signal of a warming climate.

It is also difficult to predict precisely where and when such extreme events will occur, just as it is difficult to forecast the weather more than a few days into the future. But because it is difficult to predict when a where a storm will occur doesn’t mean that storm won’t occur. Even a small increase in the frequency and severity of drought, floods, or severe storms will cause serious damage, particularly to farmland in already vulnerable regions.

The preponderance of scientific evidence and scientific opinion is unequivocal. Climate change will pose serious challenges to agricultural production and our soil and water resources.